[1994] HCA 4
Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85
[2016] HCA 47
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
[1988] HCA 11
Turner Manufacturing Co Pty Ltd v Senes [1964] NSWR 692
Victoria v Tatts Group Ltd [2016] HCA 5
(2016) 90 ALJR 392
Water Board v Moustakas (1988) 180 CLR 491
Judgment (22 paragraphs)
[1]
P Miles (Self-represented) (Appellant)
G Carolan (Respondent)
[2]
Solicitors:
MCK Lawyers (Respondent)
File Number(s): 2021/85193
Decision under appeal Court or tribunal: District Court of New South Wales
Jurisdiction: Civil
Citation: Miles v Trustee for Luneburger Franchising Trust trading as Luneburger Franchising Pty Ltd [2021] NSWDC 30
Date of Decision: 5 March 2021
Before: J Smith SC DCJ
File Number(s): 2019/53629
[3]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[4]
HEADNOTE
[This headnote is not to be read as part of the judgment]
The appellant, Mr Phillip Miles, is a director of PJM Litigation & Debt Management Pty Ltd (the Agent). On 21 March 2018, the Agent entered into an agreement with Luneburger Franchising Pty Ltd, the respondent, for the collection of a debt of $219,054.85 owed by MJ Chatswood Pty Ltd to Luneburger. The debt arose from the supply of products to a bakery franchise operated by MJ Chatswood under licence from Luneburger at premises at Chatswood.
The Agent, on behalf of Luneburger, retained solicitors to act and advise on proceedings for recovery of the debt from MJ Chatswood. The solicitors filed a statement of claim in the District Court on 30 May 2018 against four defendants: Ms Myung Sook Byun and Mr Jun Mo Yoo (the directors of MJ Chatswood), Tadami Pty Ltd (a related entity of MJ Chatswood) and MJ Chatswood. On 2 August 2018, default judgment was entered against Tadami and MJ Chatswood for $266,770.85, notwithstanding that MJ Chatswood had been deregistered on 10 June 2018.
The claim against Ms Byun and Mr Yoo was based on an alleged written and/or oral guarantee given in relation to the obligations of MJ Chatswood to Luneburger. A dispute arose between Luneburger and the Agent as to whether the solicitors retained by the Agent were authorised to commence proceedings against defendants other than MJ Chatswood. On 26 November 2018, new lawyers acting for Luneburger terminated the instructions of the solicitors retained by the Agent. The proceedings against Ms Byun and Mr Yoo were dismissed with costs on the application of a solicitor appearing for Luneburger.
On 13 December 2018, the Agent executed a deed of assignment purporting to assign for value "all its rights, title and interest to the aforementioned Debt [of $117,378] and causes of action" to its director, Mr Miles. The "debt" was the fee claimed by the Agent to be payable under the debt collection agreement. The deed also purported to assign all causes of action that the Agent had against Luneburger in relation to breach of contract, among other claims.
Mr Miles brought proceedings against Luneburger seeking to recover the fee. On 5 March 2021, the primary judge (Smith SC DCJ) dismissed the proceedings with costs. The essential findings of the primary judge were: no amount was owing under the debt collection agreement; the only matter that could have been assigned to Mr Miles was the Agent's cause of action to sue for damages for any breach of that agreement; there was no breach of the agreement; and, even if there had been, no damages flowed from that breach.
Mr Miles' appeal raised the following issues:
whether there was an accrued obligation under the debt collection agreement that Luneburger pay a fee to the Agent;
whether the specified "debtor/s" in the debt collection agreement included Tadami, Ms Byun and Mr Yoo;
whether Luneburger breached the debt collection agreement by appointing new solicitors in November 2018 to conduct the District Court proceedings; and
assuming breach of the agreement by Luneburger, whether the Agent suffered any damage to which Mr Miles was entitled as assignee of the Agent's causes of action.
Held, dismissing the appeal (per Gleeson JA, Macfarlan JA and Simpson AJA agreeing):
As to issue 1
Read in context, the word "collect" in the agreement means to recover the debt (or part thereof), rather than simply obtaining judgment for the debt against the specified debtor(s). The Agent's entitlement to the fee and its quantum depends upon the amount (if any) collected from the specified "debtor/s". It would be a commercial nonsense to construe the agreement as entitling the Agent to the fee simply upon obtaining judgment against the debtor in circumstances where no amount was ever collected from the debtor: [33]-[34].
As to issue 2
The reference in the contract to a single debtor, MJ Chatswood, is consistent with the parties' objective intention that the agreement only cover the specified debtor. The wide authority conferred on the Agent to do "anything lawful" on behalf of Luneburger to collect its debt is only in relation to the specified debt owed by MJ Chatswood: [38]-[40].
The alleged debts owed to Luneburger by Tadami and the guarantors were not the same "debt" owed by Luneburger: the default judgment against Tadami was based on the alleged breach of a promise by a person purporting to act on behalf of Tadami; and the claim against the alleged guarantors was a claim in debt for a secondary obligation separate to the debt owed by MJ Chatswood: [41]-[42].
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245: [1988] HCA 11; Jowitt v Callaghan (1938) 38 SR (NSW) 512; Turner Manufacturing Co Pty Ltd v Senes [1964] NSWR 692; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 referred to.
The Agent was not given implied actual authority to do whatever was conducive to recovering the debt owed by MJ Chatswood by pursuing all the defendants named in the statement of claim: [43]-[44].
As to issue 3
Viewed objectively, the terms of Luneburger's communication on 26 November 2018 to the solicitors appointed by the Agent conveyed the message that the solicitors' instructions from the Agent had been withdrawn and the Agent could not sue the alleged guarantors or take any other step in the District Court proceedings against any of the defendants. Further, Mr Yaltirakli's affidavit of November 2018, a director of Luneburger, included an unqualified assertion that Luneburger, not the Agent, would pursue collection of the debt owed by MJ Chatswood. A finding should be made that Luneburger breached cl 2 of the agreement in late November 2018 by interfering with the Agent's collection of the debt owed by MJ Chatswood: [55]-[57].
As to issue 4
On the issue of causation, the appellant had to prove, on the balance of probabilities, that the Agent sustained some loss or damage (other than negligible) as a result of Luneburger's breach of the agreement in late November 2018. This required the appellant to prove that the Agent would have taken steps in the name of Luneburger to have the registration of MJ Chatswood reinstated, and then would have lodged a proof of debt on behalf of Luneburger, where there was a substantial, and not merely speculative prospect, that such a proof of debt had some value: [75]-[76].
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4; Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473; Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18; Mal Owen Consulting Pty Ltd v Ashcroft (2018) 97 NSWLR 1163; [2018] NSWCA 135 referred to.
The evidence revealed that MJ Chatswood did not have any realisable assets, its bank account was overdrawn, and its financial statements, although unsigned, recorded significant negative net assets. There was no evidence that the Agent could and would have obtained reinstatement of MJ Chatswood. The value of the lost opportunity to obtain the fee payable for collecting the debt owed by MJ Chatswood was so low as to be regarded as negligible or speculative: [80]-[81].
On the hypothesis that the alleged guarantors and Tadami were specified debtors in the agreement and Luneburger breached the agreement by stopping the Agent from collecting those alleged debts:
there was no evidence to establish that the chance of enforcing any judgment which might be obtained against the alleged guarantors had some value other than negligible or speculative: [87]-[89];
the likelihood of obtaining the fee payable for collecting the debt of Tadami was no more than a 5 to 10 per cent chance; if it were necessary to decide, the damages for the loss of the chance of obtaining the fee payable under the agreement would be assessed as $8000, however this is a contingent finding which does not arise given the conclusion on construction of the debt collection agreement: [95]-[97].
[5]
Judgment
MACFARLAN JA: I agree with Gleeson JA.
GLEESON JA: This appeal concerns a dispute in relation to a debt collection agreement.
The appellant, Mr Phillip Miles, is a director of PJM Litigation & Debt Management Pty Ltd (the Agent) which, as its name implies, carries on the business of collecting debts. The respondent is incorrectly named in the notice of appeal and the proceedings below. An order should be made changing the name of the respondent to its correct title: "Luneburger Franchising Pty Ltd as trustee for the Luneburger Franchising Trust" (Luneburger).
On 21 March 2018, the Agent entered into an agreement with the "Luneburger Franchising Trust" (described as the creditor) for the collection of a debt owed by MJ Chatswood Pty Ltd to Luneburger. The debt arose from the supply of products to a bakery franchise operated by MJ Chatswood under licence from Luneburger at premises at Chatswood; Luneburger was the lessee of those premises. It is common ground that the reference in the agreement to "Luneburger Franchising Trust" is to be read as a reference to Luneburger. Luneburger stopped supplying products to MJ Chatswood in about February 2018 and surrendered the lease of the Chatswood premises at that time. The amount of the debt claimed by Luneburger was $219,054.85.
The debt collection agreement consisted of two documents. The first, headed "Debt Collection Authority & Contract", comprised two pages. Page one contained the "debtor details", listed as "MJ Chatswood Pty Ltd", and the following material terms:
1. We will collect your debt for a fee of 40% of your debt amount and payable from the payment we collect from the debtor/s.
2. While we are acting and collecting your debt, you cannot do anything about your debt until we are finish [sic] with our collection process and inform you or until we return your debt to you. In the event that your debt is recovered by you or anyone while we are acting and pursuing the debtor, you shall pay us our fee in para (1). We're entitled to costs payable by the debtor.
…
4. After you or your Authorised person or Solicitor signed [sic] this form, you authorise us to do anything lawful on your behalf to collect your debt. …
Page two of the first document was headed "Certificate of Authority" and provided that the creditor "Luneburger Franchising Trust":
HEREBY EMPLOY AND AUTHORISE PJM AND PHILLIP MILES … TO DO ANY LAWFUL ACTION TO RECOVER OUR DEBT.
FROM (Debtor): MJ CHATSWOOD PTY LTD
THIS AUTHORITY REMAIN [sic] ENFORNCE [sic] UNTIL OUR DEBT IS COLLECTED IN FULL.
[6]
The proceedings below
Mr Miles first brought proceedings in the Supreme Court against Luneburger claiming the fee allegedly payable under the debt collection agreement of $117,378.80 and exemplary damages. On 19 November 2019, the proceedings were transferred to the District Court.
Mr Miles was self-represented at the hearing below. He relied upon affidavit evidence of himself and Mr Baena. Much of that evidence was successfully objected to by counsel for Luneburger. Mr Miles tendered a large volume of documentary material through Mr Baena, which included the pleadings and affidavits in the original District Court proceedings against the four defendants. Mr Miles called Mr Muharren Koyuncu from MCK Lawyers who gave evidence-in-chief of the oral instructions he received from Mr Yaltirakli on about 21 November 2018, specifically, that Mr Yaltirakli "had no idea he'd sued four parties in the District Court", and that "he wasn't given any advice, he didn't know the parties that were being served, he wasn't told about the consequences of the hearing date. All he knew was debt [sic] was being recovered for it".
Mr Baena accepted in cross-examination that he did not give Mr Yaltirakli any written advice, nor send any letters to him. Mr Baena could not recall details of conferences he said he had with Mr Yaltirakli on 26 March 2018 and 22 May 2018, as he had lost his file notes when he left his old practice. He agreed that Mr Yaltirakli told him on 25 September 2018 that he did not have a copy of the executed agreement (being a reference to the product supply agreement) and that he was looking for it.
On 5 March 2021, the primary judge (Smith SC DCJ) dismissed the proceedings with costs: Miles v Trustee for Luneburger Franchising Trust trading as Luneburger Franchising Pty Ltd [2021] NSWDC 30. The essential findings of the primary judge were: (1) no amount was owing under the debt collection agreement; (2) the only matter that could have been assigned to Mr Miles was the Agent's cause of action to sue for damages for any breach of that agreement; (3) there was no breach of the agreement; and (4) even if there had been, no damages flowed from that breach: at J [13].
On 9 April 2021, the primary judge dismissed with costs Mr Miles' notice of motion filed 12 March 2021 seeking a different costs order, namely, that each party pay its own costs.
[7]
The appeal
Mr Miles was self-represented on appeal. The grounds of appeal raise the following issues:
1. whether there was an accrued obligation under the debt collection agreement that Luneburger pay a fee to the Agent;
2. whether the specified "debtor/s" in the debt collection agreement included Tadami, Ms Byun and Mr Yoo;
3. whether Luneburger breached the debt collection agreement by appointing new solicitors in November 2018 to conduct the District Court proceedings;
4. assuming breach of the agreement by Luneburger, whether the Agent suffered any damage to which Mr Miles was entitled as assignee of the Agent's causes of action; and
5. whether the primary judge's costs discretion miscarried.
[8]
Construction of the agreement: grounds 1, 3 and 4
The dispositive reasons on the construction of the agreement are contained at J [23]-[24]:
[23] Importantly, the fee payable under cl 1 on the first page was described to be "payable from the payment we collect from the debtor/s". There are two important points that arise from this. First, given that only one debtor is named in the document, and the forms are standard forms, the reference to "debtor/s" is to be understood as a reference to a single debtor, namely, MJ Chatswood Pty Ltd. Secondly, the fee is only payable if PJM Litigation succeeds in obtaining some money from MJ Chatswood in relation to the debt. "Collect" here has its ordinary meaning of asking for and getting, rather than simply asking for. That is reinforced by the word "payment" in cl 1 and cl 3 which provides that no fee is payable if the debt is not collected.
[24] It is common ground that, although default judgment was entered against MJ Chatswood Pty Ltd in respect of the debt owed by it, no money was ever obtained in satisfaction or partial satisfaction of that judgment or otherwise. In other words, the debt has never been collected. As a consequence, no fee is, or ever has been, payable by the defendant under the Debt Collection agreement.
Grounds 1, 3 and 4 are all directed at challenging his Honour's construction of the contract.
Ground 1 contends that the primary judge erred in finding that no amount was ever owed under the debt collection agreement and the only matter that could have been assigned to Mr Miles was the Agent's cause of action to sue for damages for any breach of that agreement. Ground 3 contends that the primary judge erred in failing to consider the entire written agreement and in describing the document as "not … well drafted". Ground 4 contends that the primary judge erred in finding that the reference to "debtor/s" in cl 1 of the agreement is to be understood as a reference to a single debtor, namely, MJ Chatswood.
[9]
Consideration
The two issues of construction raised by these grounds are: (1) the event or circumstance upon which the 40 per cent fee was payable to the Agent under cl 1 of the agreement; and (2) the identity of the specified "debtor/s" referred to in cl 1 of the agreement.
The debt collection agreement is a commercial contract. Accordingly, the Court should, in construing it, ask "what a reasonable businessperson would have understood [the relevant] terms to mean": Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]. The task is an objective one; it involves identifying the imputed intention of the parties by reference to the contractual text construed in the light of its context and purpose: Electricity Generation at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[51] and [108]-[109]; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]-[75]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [18].
[10]
When is the fee payable?
Mr Miles submitted that the word "collect" in cl 1 of the agreement means to obtain judgment, and hence the fee became payable upon the Agent obtaining judgment against MJ Chatswood and Tadami. That is not so. Read in context, the word "collect" means to recover the debt (or part thereof), rather than simply obtaining judgment for the debt against the specified debtor(s). The Agent's entitlement to the fee and its quantum depends upon the amount (if any) collected from the specified "debtor/s".
As the primary judge correctly observed, this construction is reinforced by the terms of cl 1 which made plain that the 40 per cent fee was payable from "the payment we collect from the debtor/s" (emphasis added). This construction also accords with the purpose or object of the agreement being the collection of a debt. It would be a commercial nonsense to construe the agreement as entitling the Agent to the fee simply upon obtaining judgment against the debtor in circumstances where no amount was ever collected from the debtor.
Insofar as Mr Miles submitted that "there was an opportunity to get some money … ample opportunity, had we not been stopped", this contention was directed to the question of breach of the agreement and damages for loss of the commercial opportunity to acquire the benefit of the fee payable under the agreement.
Ground 1 is rejected. There was no error by the primary judge in finding that there was no debt the subject of the deed of assignment dated 13 December 2018. The only property relevantly assigned to Mr Miles was the Agent's cause of action for damages for alleged breach of contract by Luneburger.
Nor is there any substance in ground 3. The primary judge considered the terms of the agreement and did not err in finding that no fee was ever payable under the agreement. Nothing turns on his Honour's observation that the agreement was not a well-drafted document.
[11]
Identity of the "debtor/s"
Mr Miles submitted that the reference to a single debtor, MJ Chatswood, in the Debt Collection Authority & Contract was merely because there was only "one space" on the form. This submission is contentious given the apparent space on the form to include other debtors. Nevertheless, there were other ways for the parties to include further debtors within the scope of the agreement, such as by including an annexure. That the parties did not do so is consistent with their objective intention that the agreement only cover the specified debtor, MJ Chatswood.
Next, Mr Miles submitted that, when read with the authority conferred on the Agent by cl 3 to "do anything lawful on [Luneburger's] behalf to collect [Luneburger's] debt", the single reference to MJ Chatswood as the "debtor" is to be understood as authorising the Agent to pursue and recover the debts from four debtors: MJ Chatswood, Tadami, and "Mr Byun" and Mr Yoo. (The reference by Mr Miles to "Mr Byun" is incorrect. On the unchallenged evidence below, Ms Myung Sook Byun is the wife of Mr Jee Hyun Yoo, the person known as "John" with whom Mr Yaltirakli dealt with in relation to MJ Chatswood.)
A major difficulty with this submission is that the wide authority conferred on the Agent by cl 3 is only in relation to the specified debt owed by MJ Chatswood. By contrast, the alleged debts owed to Luneburger by Tadami and the guarantors were not the same as the debt owed by MJ Chatswood.
First, the default judgment against Tadami, although strictly on the face of the pleadings a claim in damages, was not in respect of the debt owed by MJ Chatswood to Luneburger. The judgment was based on the alleged breach of a promise by Mr Jee Hyun Yoo (incorrectly referred to by Mr Miles as "the first defendant") to pay Luneburger the debt owed by MJ Chatswood from the proceeds of sale of Tadami's business. There was no evidence that the business of Tadami had been sold.
Second, the claim against the directors of MJ Chatswood as the alleged guarantors of the obligations of that company was a claim in debt. However, the distinctive feature of a contract of guarantee is the secondary nature of the obligation which is assumed by the guarantor: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 254: [1988] HCA 11; Jowitt v Callaghan (1938) 38 SR (NSW) 512 at 516 (Jordan CJ). That is, there must be another person who is primarily liable: Turner Manufacturing Co Pty Ltd v Senes [1964] NSWR 692 at 694 (Walsh J). The reference in the authorities to "primary liability" is to be understood as "ultimate liability": Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [7], citing Mason CJ in Sunbird Plaza at 254. Here, the person ultimately liable was MJ Chatswood. The claim against the alleged guarantors was a claim in debt for an obligation separate to the debt owed by MJ Chatswood.
[12]
Breach of contract: grounds 2, 5 and 8-12
The dispositive reasons on the question of breach are contained at J [35]-[39]:
[35] It will be recalled that this clause prevented the defendant from doing "anything about (its) debt until (PJM Litigation) are finish with (its) collection process." However, on its proper construction, the debt collection agreement only authorised PJM Litigation to "collect" the debt from the debtor, that is, from MJ Chatswood. That was the company whose details were included in the debtor details of the first page of the agreement and cl 1 provided that PJM Litigation was only entitled to a fee from the "payment we collect from the debtor/s". As I have explained, "debtor/s" must be taken to mean MJ Chatswood.
[36] The breach is said to have occurred by reason of the letter signed by Mr Yaltirakli dated 26 November 2018 authorising Mr Koyuncu to take over the conduct of the proceedings. At that time, default judgment had been entered against MJ Chatswood as well as against another defendant, Tadami Pty Ltd. The only matter still on foot was the claim against the directors of MJ Chatswood on the basis that they had guaranteed MJ Chatswood's obligations to the defendant and had not paid the amount outstanding. The matter was listed for hearing on 29 November 2018.
[37] Given the limited scope of the debt collection agreement, the act of authorising a different firm of solicitors to take over the District Court proceedings in late November 2018 was not "doing anything about the debt" owed by MJ Chatswood. The purpose of the prohibition in cl 2 against doing anything about the debt was to ensure that PJM Litigation could fulfil its obligation of collecting the debt from MJ Chatswood. As I have explained, its authority to instruct lawyers and manage litigation was not at large and, likewise, neither was the prohibition contained in cl 2.
[38] Contrary to the plaintiff's argument, the steps taken by the defendant to take control of the District Court proceedings against the directors of MJ Chatswood did not deny it the opportunity of collecting the debt from MJ Chatswood. There was default judgment against that company. Although, by the time of that judgment, the company was de-registered, steps may still have been available to have the company reinstated and then to enforce the judgment. The plaintiff led no evidence to establish that this was not possible.
[39] For those reasons, there was no breach of the debt collection agreement and the proceedings must be dismissed.
[13]
Consideration
The primary judge's conclusion that there was no breach of the agreement rested on two findings. The first concerned the scope of the authority conferred on the Agent. His Honour found that the Agent's authority did not extend to commencing proceedings against Tadami or the alleged guarantors. The second concerned Luneburger's conduct in instructing new solicitors in the District Court proceedings in late November 2018. His Honour found that this did not preclude the Agent from collecting the debt from MJ Chatswood.
There is no error in the first finding. It accorded with the primary judge's construction of the agreement, which was correct. Thus, there was no error in finding that Luneburger did not breach the prohibition in cl 2 of the agreement by stopping the Agent in late November 2018 from collecting the alleged debts owed by Tadami and the alleged guarantors.
The second finding was based on an acceptance of Luneburger's submission that the agreement authorising the Agent to collect the debt owed by MJ Chatswood remained on foot notwithstanding that Luneburger instructed new solicitors in the District Court proceedings in late November 2018. The judge reasoned that this conduct by Luneburger only affected the recovery of the debt owed by the alleged guarantors as the proceedings against MJ Chatswood had been finalised. I respectfully disagree.
Viewed objectively, the terms of the communication from Luneburger to Jessie Icao Solicitors on 26 November 2018 (see [15] above) conveyed the message that the solicitors' instructions from the Agent, on behalf of Luneburger, had been withdrawn and the Agent could not sue the alleged guarantors or take any other step in the District Court proceedings, such as to apply for the issue of an examination summons, a writ of levy of property, or a garnishee order against MJ Chatswood or Tadami.
Insofar as there is arguably a doubt as to the withdrawal of the Agent's authority by Luneburger's communication on 26 November 2018, any doubt was removed by the statement in Mr Yaltirakli's November 2018 affidavit in which he deposed (par 23):
I intend to pursue the two corporate defendants and hold them to account for the transactions that were conducted whilst the companies were accruing debts to the plaintiff.
This statement was an unqualified assertion that Luneburger, not the Agent, would pursue collection of the debt owed by MJ Chatswood. This was contrary to the prohibition in cl 2 of the agreement. A finding should be made that Luneburger breached cl 2 of the agreement in late November 2018 by interfering in the Agent's process of collecting the debt owed by MJ Chatswood.
[14]
Assuming breach, whether any damages: grounds 13 - 17
The dispositive reasons on the question of damages are contained at J [41]-[44]:
[41] [Mr Miles] claims the amount of $117,378.80. This amount is calculated as 40% of the amount claimed in the District Court proceedings plus interest. That calculation proceeds on the incorrect premise that the fee was in fact payable by the defendant. The correct approach for the assessment of damages for breach of contract is to place the injured party, so far as money can do it, in the same position as if the contract had been performed. The counterfactual here is that PJM Litigation retained control of the litigation against the directors of MJ Chatswood. That, in turn, provided PJM Litigation with the opportunity of obtaining judgment against those directors and, in turn, enforcing that judgment. This requires an assessment of the probability of each of those events occurring: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, 349.
[42] The case against the directors rested on the proposition that they were "guarantors responsible and personally liable for the debt". The statement of claim particularises the guarantee in [5], as arising from cl 8 of the supply agreement. In addition, the allegation is said to have been based on statements made to Mr Yaltirakli by each of the two directors at the same meeting that they would pay for any supply by the defendant to MJ Chatswood. The directors denied the allegation and, in their affidavits, denied ever meeting together with Mr Yaltirakli or otherwise agreeing to guarantee the obligations of MJ Chatswood to the defendant.
[43] There is no general requirement in New South Wales for a contract of guarantee to be in writing: Imperial Acts Application Act 1969 (NSW), s 8(1); The Modern Contract of Guarantee, O'Donovan and Phillips, online edition, Thomson Reuters, [3.300]. For that reason, the failure by the plaintiff here, or PJM Litigation in the District Court proceedings, to be able to produce a written guarantee is not fatal to the claim. However, it is not an easy matter to establish that an oral guarantee is binding in circumstances where there was, on the plaintiff's case, a written document. Even so, the probability of doing so cannot be set at zero.
[44] The real difficulty with the plaintiff's case, however, is that there is no evidence at all to establish that there was any real chance of enforcing any judgment obtained against the two directors. Without any evidence it is impossible to assess the probability of PJM Litigation enforcing any judgment against the directors. For that reason, even if the defendant breached the debt collection agreement, I am not satisfied that there was any loss occasioned by the breach.
[15]
Consideration
Given the primary judge's conclusions on construction and the finding which should be made as to breach of the agreement by Luneburger (see [57] above), it is necessary to address the Agent's claim for damages for breach of contract. That claim was advanced as damages for loss of the opportunity of obtaining a fee under the agreement for collecting the debt owed by MJ Chatswood.
In Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 349-355; [1994] HCA 4, a case involving a claim for damages under s 82 of the Trade Practices Act 1974 (Cth), the High Court held that where damages are claimed for the deprivation of a commercial opportunity, and the issue of causation turns on what the plaintiff would have done, ordinarily the plaintiff must prove on the balance of probabilities that he or she has sustained some loss or damage. Where the plaintiff shows that some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value is to be assessed by reference to the degree of probabilities or possibilities of the case.
In Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473, a breach of contract case, a boxing promoter (Fightvision) claimed damages for the loss of a commercial opportunity to make profits promoting or co-promoting boxing bouts featuring Mr Tszyu over a two-year period. The assessment of damages for loss of the commercial opportunity was assessed according to the degree of possibility or probability of such bouts occurring and generating earnings as claimed by the promoter: at [140].
In Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18, a case involving a claim in tort by a beneficiary under a will alleging negligence against the solicitor who prepared the will, the joint judgment of French CJ, Kiefel and Keane JJ rejected the approach of the majority in Allied Maples Group Ltd v Simmons & Simmons (a Firm) [1995] 1 WLR 1602 which held that, where the opportunity which is lost depends upon the actions of a third party, proof of a substantial chance of a beneficial outcome is sufficient on the issue of causation, as distinct from the assessment of damages: at [41]. The joint judgment in Badenach held that proof of causation of loss required the plaintiff to establish, on the balance of probabilities, "that there was a substantial prospect of a beneficial outcome" and "[t]his requires evidence of what would have been done if the opportunity had been afforded": at [40]. The word "substantial" in the joint judgment is to be taken to mean "more probable than not": see Badenach at [41].
[16]
(i) MJ Chatswood
On the issue of causation, Sellars requires Mr Miles to prove, on the balance of probabilities, that the Agent sustained some loss or damage (other than negligible) as a result of Luneburger's breach of the agreement in late November 2018. Relevant to that question is the fact that the default judgment against MJ Chatswood had been obtained by the Agent against a non-existent entity, as MJ Chatswood had been deregistered. The primary judge found (at J [38]), albeit in the context of the question of breach of the agreement:
Although, by the time of that judgment, the company was de-registered, steps may still have been available to have the company reinstated and then to enforce the judgment. The plaintiff led no evidence to establish that this was not possible.
The reference by the primary judge to Mr Miles "failing" to adduce evidence to establish that it was "not possible" to have reinstated the company and then enforce the judgment is curious (emphasis added). It does not follow from the absence of such evidence that Mr Miles established, on the balance of probabilities, that there was a "substantial prospect of a beneficial outcome": Badenach at [40]. Mr Miles is required to prove on causation that the Agent would have taken steps in the name of Luneburger, including incurring the relevant costs, to have the registration of MJ Chatswood reinstated pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (as a company in liquidation, given its apparent insolvency), and then would have lodged a proof of debt on behalf of Luneburger, where there was a substantial, and not merely speculative prospect, that such a proof of debt had some value other than negligible.
On the evidence below, the Agent did not take any steps to reinstate MJ Chatswood between 2 August and 28 November 2018. Nor was any evidence adduced concerning the discretionary factors relevant to whether MJ Chatswood should be reinstated by the Court, which usually would include evidence of the circumstances in which the company was deregistered; the purpose of the reinstatement; the solvency of the company; whether any person is likely to be prejudiced by the reinstatement; and the public interest generally: ACCC v ASIC [2000] NSWSC 316; (2000) 34 ACSR 232. Specifically, there was no evidence that any purpose would be served by the Court reinstating an apparently insolvent company, such as evidence that unsecured creditors would likely benefit from any potential claims, and their value and viability, that a liquidator of MJ Chatswood might have against other parties, if the company was reinstated.
[17]
(ii) The other defendants
On the proper construction of the agreement, the Agent's claim for damages for the lost opportunity that a fee would be obtained for the collection of alleged debts owed by Tadami and the alleged guarantors does not strictly arise. Nonetheless, I will briefly express my views.
[18]
Ms Byun and Mr Yoo
On the hypothesis that the alleged guarantors were specified debtors and Luneburger breached cl 2 of the agreement by stopping the Agent collecting this alleged debt, the primary judge found (at J [44]) that, whilst the giving of a written guarantee was disputed by the directors and the prospects of establishing an oral guarantee were likely to be difficult:
there is no evidence at all to establish that there was any real chance of enforcing any judgment obtained against the two directors. Without any evidence it is impossible to assess the probability of PJM Litigation enforcing any judgment against the directors.
Although the primary judge accepted that the claim against the alleged guarantors, whilst difficult, was viable, the judge found that Mr Miles failed to establish causation between the assumed breach of the agreement and the Agent's chance of obtaining the fee for collecting the debt from the alleged guarantors because the judge was not satisfied on the evidence that enforcement of any judgment against the alleged guarantors had some value.
Contrary to the premise of grounds 14 and 15, the affidavit evidence did not permit a finding to be made by the primary judge, on the balance of probabilities, that the directors had signed the product supply agreement containing the guarantee. Nor can this Court make such a finding, as invited to do so by Mr Miles, on the basis of his assertion that evidence to this effect was "available" to be provided in the original District Court proceedings. The primary judge found, correctly, on the evidence that the Agent had not produced a written guarantee in the original District Court proceedings against the alleged guarantors.
Mr Miles contended that there was "some" evidence below of the directors' financial positions. He drew attention to evidence of Mr Yoo's St George Bank "Get Set Loan" account statements for the months of February 2018 to June 2018 and Ms Byun's St George Bank Incentive Saver Account statements which recorded credit balances at the end of June 2017 ($20,829.01) and December 2017 ($37,808.46).
That Ms Byun had savings in the order of $20,000 to $38,000 in the second half of 2017, and Mr Yoo had an approved credit limit in 2018 of $40,000, is not probative of their respective abilities to pay any judgment that might have been obtained against them in the District Court proceedings, assuming a hearing in late November 2018 and judgment given in favour of Luneburger in the first half of 2019. There was no evidence of their likely financial position in early to mid-2019, taking into account the effect of the likely legal costs of defending the proceedings.
[19]
Tadami
The primary judge did not address the Agent's chance of obtaining the fee payable under the agreement for collecting the judgment debt owed by Tadami.
Assuming, contrary to the conclusion on construction of the agreement, that Tadami was a specified debtor and that Luneburger breached the agreement in late November 2018 by stopping the Agent collecting the judgment debt owed by Tadami, the first question is whether Mr Miles established that the Agent lost an opportunity of some value, being the chance that a fee would be obtained for the collection of the debt owed by Tadami. If that chance has some value (other than negligible or speculative) the second question is the assessment of that value by reference to the degree of probabilities or possibilities of the case
On the first question, it can be accepted on the issue of causation that Mr Miles established, on the balance of probabilities, that he would have sought to have enforced the judgment debt against Tadami. Mr Miles submitted that there was "some" evidence of Tadami's financial position in late 2018. He drew attention to the following: (a) Tadami had a 5-year lease of premises (a sushi shop) at Westfield, Sydney, ending May 2020; (b) a bank guarantee in the amount of $36,173.93 had been given by the CBA as security for Tadami's obligations under that lease; and (c) business activity statements of Tadami for the period April 2017 to June 2018 which recorded total sales for quarterly periods, the most recent being April-June 2018 ($71,717).
Contrary to Mr Miles' submissions, the evidence did not establish that Tadami was solvent in late 2018; there is no evidence of any financial statements of Tadami. It can be accepted that Tadami had a valuable right to conduct business as a sushi shop at Westfield, Sydney, for about another 18 months, and that its business activity statements recorded sales up to June 2018, however, that says little of the profitability or otherwise of its business, given the absence of any costs or expenses of the business in those statements for the period July 2017 to June 2018. There is no evidence of the status of the business or its financial performance after June 2018.
In the circumstances, the chance that a fee would be obtained for collecting the debt owed by Tadami was very much less than 50 per cent, however, it cannot be concluded that "the chance is so low as to be regarded as speculative - say less than 1 per cent": Malec v JC Hutton Pty Ltd at 643. If it were necessary to decide, I would find that causation was established.
[20]
Costs: ground 18
Ground 18 challenges the primary judge's costs order that Mr Miles pay Luneburger's costs of the proceedings below. As indicated, the primary judge rejected Mr Miles' application for a substituted order that each party pay its own costs of the proceedings, giving the following reasons.
First, his Honour did not accept Mr Miles' submission that the conduct of Luneburger was causative of incurring costs in the proceedings because Luneburger had rejected two offers made by Mr Miles. His Honour observed that the first offer, which was on the basis that each party pay its own costs, absolved Mr Miles from his obligation to pay the costs of the proceedings which had originally been commenced in the Supreme Court before being transferred to the District Court by order made on 19 November 2019 by Wright J (who had ordered that Mr Miles pay the costs of the hearing before him on that day). As to the second offer, his Honour noted that it was made on the first day of the hearing and did not deal with costs at all.
Second, his Honour did not accept Mr Miles' submission that the incurring of costs was the responsibility of Luneburger and Luneburger was no worse off by reason of proceeding to judgment. His Honour found that Luneburger was in a far better position having received judgment in its favour. His Honour continued:
In addition to the ordinary order as to costs, what also [sic] the application fails to address is part of the principal basis of my judgment that ultimately, and indeed in the very beginning, this claim was poorly framed. It was based on a debt that never existed and so the prospects of the plaintiff succeeding was, setting aside some of the other difficult issues that arose, always very marginal.
Mr Miles submitted that Luneburger is worse off, notwithstanding that it succeeded in defending the proceedings, because it incurred unnecessary costs that were plainly and evidently avoidable and, had Luneburger accepted the offer, the matter would not have proceeded to judgment or any appeal.
There is no merit in this submission. Mr Miles made a claim against Luneburger for a not insubstantial amount. There was nothing unreasonable in Luneburger defending the claim. It succeeded in doing so. No reason was shown for departing from the general rule that costs follow the event: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1. Mr Miles has not demonstrated any error in the exercise of his Honour's discretionary decision as to costs: House v The King (1936) 55 CLR 499; [1936] HCA 40.
[21]
Conclusion
The appeal has failed. There is no reason why costs should not follow the event: UCPR, r 42.1.
I propose the following orders:
1. Direct that the name of the respondent be changed to "Luneburger Franchising Pty Ltd as trustee for Luneburger Franchising Trust".
2. Appeal dismissed.
3. Appellant to pay the respondent's costs.
SIMPSON AJA: I agree with Gleeson JA.
[22]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 14 October 2021
The second document was a form headed "Privacy Consent and Authority Act", the terms of which included:
You appoint us as your agent to manage your litigation and or debt and obtain your personal and financial information …
On 30 March 2018, the Agent, on behalf of Luneburger, retained Jessie Icao Solicitors to act and advise on proceedings for recovery of the debt from MJ Chatswood. Mr Thomas Baena was the solicitor from Jessie Icao handling the matter. Those solicitors prepared a statement of claim which was filed in the District Court on 30 May 2018 against four defendants, including MJ Chatswood. The first and second defendants, Ms Myung Sook Byun and Mr Jun Mo Yoo, were alleged guarantors of MJ Chatswood's debt owed to Luneburger. The third defendant, Tadami Pty Ltd, was a related entity of MJ Chatswood, but unconnected to the franchise at the Chatswood premises. Tadami was the lessee of commercial shop premises at Westfield, Sydney, under a lease dated 13 February 2017; Ms Myung Sook Byun, the sole director of Tadami, and her husband, Mr Jee Hyun Yoo, were the guarantors of Tadami's obligations under that lease.
The statement of claim was verified by Mr Miles, who described himself as Luneburger's litigation manager. The pleadings alleged that:
1. in March 2015, Ms Myung Sook Byun and Mr Jun Mo Yoo agreed to guarantee the obligations of MJ Chatswood to Luneburger under an agreement for the supply of products (pars 2, 4 and 5);
2. between April 2016 and February 2018, Ms Byun and Mr Yoo made promises to pay the existing debt owed by MJ Chatswood to Luneburger, and at the same time MJ Chatswood continued to order and receive Luneburger's products, which promises Luneburger relied upon (par 8); and
3. Tadami was also liable for the debt owing by MJ Chatswood "because [MJ Chatswood's] monies were put into [Tadami]" (par 13) and Luneburger had relied on the representation made to it by Ms Byun that Ms Byun had used Luneburger's monies to fund Tadami and that Ms Byun was in the process of selling Tadami for a large sum of money, the proceeds of which would be used to pay Luneburger's debt (par 9).
According to a search of the records of the Australian Securities and Investments Commission, Ms Byun and Mr Yoo were appointed directors of MJ Chatswood on 14 January 2015 and ceased to be directors on 10 June 2018 and 10 October 2017 respectively. They filed a defence on 23 July 2018 denying that they had guaranteed the debts of MJ Chatswood.
On 2 August 2018, on the application of the Agent's solicitors, default judgment was entered against Tadami and MJ Chatswood for $266,770.85, notwithstanding that MJ Chatswood had been deregistered on 10 June 2018.
Mr Ahmet Yaltirakli, the sole director and shareholder of Luneburger, swore an affidavit dated 25 September 2018 in which he described the first defendant (Ms Myung Sook Byun) as a person calling himself "John" and the second defendant as his son, who called himself "Sam". Mr Yaltirakli deposed to a conversation in March 2015 in which he requested that John and Sam provide a guarantee of MJ Chatswood's obligations to Luneburger. He said that on 6 March 2015 a draft licence agreement and product supply agreement were forwarded to John and Sam by Luneburger's solicitor by email (to the email address yoo-jeehyun@xxx.com), and that he obtained the original signed licence agreement and product supply agreement from the first and second defendants when visiting the shop on 1 June 2015, but could not locate those documents in Luneburger's document storage facility.
Ms Byun and Mr Yoo both filed affidavits dated 6 November 2018 in which they each denied ever signing a licence agreement or product supply agreement that contained a guarantee or having ever given an oral guarantee of the debts of MJ Chatswood.
Ms Byun deposed that her husband's name is Mr Jee Hyun Yoo, who is known as "John", and that they have two sons, the second, Mr Jun Mo Yoo, who is known as "Sam". Ms Byun said that her husband operated a Luneburger franchise at Macquarie Shopping Centre and in 2015 set up MJ Chatswood with Sam and her as the directors. Ms Byun deposed that she and Sam were responsible for the operation of MJ Chatswood, with Sam making decisions in consultation with, and on the advice of, his father.
The proceedings were set down for hearing on 29 November 2018. Shortly before the hearing, a dispute arose between Luneburger and the Agent as to whether the solicitors retained by the Agent were authorised to commence proceedings in the name of Luneburger against defendants other than MJ Chatswood. On 26 November 2018, MCK Lawyers, acting on the instructions of Luneburger, sent a letter to Jessie Icao Solicitors attaching an authority from Mr Yaltirakli terminating those solicitors' instructions, which stated:
I Ahmet Yaltirakli instruct Candan Koyuncu to take over the conduct of District Court proceedings purportedly commenced by Luneburger Franchising Pty Ltd case no: 2018/00169811.
I have not received any advice, cost disclosure or information on prospects of success or other correspondence from Thomas Baena.
I instruct Candan Koyuncu to request that Thomas Baena provide all documents to MCK Lawyers.
[Signed]
26 November 2018
MCK Lawyers filed a notice of change of solicitor in the District Court proceedings on 26 November 2018.
On 29 November 2018, a solicitor from MCK Lawyers appeared on behalf of Luneburger at the hearing in the District Court. On his application, the proceedings against Ms Byun and Mr Yoo were dismissed with costs on the ordinary basis up until 10 October 2018 and thereafter on an indemnity basis. The costs orders were stayed pending a foreshadowed application by Luneburger for a personal costs order against Mr Miles.
On 6 December 2018, Luneburger filed a notice of motion seeking a personal costs order against Mr Miles. Luneburger relied upon the affidavit of Mr Yaltirakli dated 28 November 2018, which seems to have been prepared in relation to discontinuing the proceedings against Ms Byun and Mr Yoo. It is necessary to refer to the contents of this affidavit as it is relevant to issues concerning the scope of the Agent's authority.
In his November 2018 affidavit, Mr Yaltirakli:
1. disputed giving instructions to Mr Miles to file the statement of claim. He said that he asked for and received the front page of the statement of claim and the defence on about 1 August 2018, and that his accountant was provided with a document to take over the litigation which he did not execute as he did not understand the document;
2. referred to his attendance in late September 2018 at Mr Miles' office where he met a man introduced to him as a solicitor whose name he did not recall. He said that he read and signed an affidavit that he was asked to sign;
3. said that he did not authorise Mr Miles to pursue debt recovery from anyone other than MJ Chatswood, and that he had not had any dealings with Ms Byun, whom he understood was John's wife, and that his dealings were with John and Sam;
4. corrected par 7 of his September 2018 affidavit; he said that whilst he had followed up Mr (Sam) Yoo in regards to providing him with executed copies of the licence agreement and product supply agreement, he was never provided with those executed copies;
5. said that when he received an email from Mr Miles dated 24 October 2018, the reference in the email to costs alerted him to the possibility that Mr Miles could cause Luneburger to incur costs liabilities;
6. said that he was overseas in Germany from 14 November until 22 November 2018 and that he instructed MCK Lawyers on 21 November 2018 to obtain information and advise him on the proceedings. Following advice from MCK Lawyers, he instructed those lawyers to write to Jessie Icao Solicitors on 22 November 2018 seeking information concerning the proceedings;
7. said that he had never received any correspondence, costs disclosure, advice or request for instructions from Mr Tom Baena of Jessie Icao Solicitors, and was not aware that Luneburger had obtained default judgment against the two corporate defendants until after MCK Lawyers were appointed; and
8. stated that he intended to pursue the two corporate defendants and hold them to account for the transactions that were conducted whilst the companies were accruing debts to Luneburger.
On 13 December 2018, the Agent executed a deed of assignment purporting to assign for value "all its rights, title and interest to the aforementioned Debt and causes of action" to its director, Mr Miles. The recitals to the deed identified the "debt" to be an amount of $117,378.80 plus interest and associated expenses and costs. This amount was the fee claimed by the Agent to be payable under the debt collection contract, being 40 per cent of the judgment debt of $266,770.85 owing by MJ Chatswood, which was the subject of invoice IV006246 dated 12 December 2018 issued by the Agent to Luneburger. The deed also purported to assign all causes of action that the Agent had against Luneburger in relation to breach of contract, deceptive conduct, unconscionable conduct, and director/fiduciary and statutory duties. Only the assignment of the alleged debt and the cause of action for breach of contract is presently relevant.
On 8 February 2019, Weber SC DCJ dismissed with costs Luneburger's application seeking a personal costs order against Mr Miles.
Next, Mr Miles submitted that the Agent was given an implied actual authority to do whatever was conducive to recovering the debt owed by MJ Chatswood and that suing the alleged guarantors would be a means of causing that debt to be recovered. Collecting separate debts owed by persons other than MJ Chatswood was not necessary for the purpose of effecting the object for which the express authority was given, being to recover the debt owed by MJ Chatswood to Luneburger: cf Paterson v Clarke [2002] NSWSC 1206 at [24].
Mr Miles then submitted that the payment by Luneburger of $5,000 in relation to the filing fee and the service fee for the commencement of the District Court proceedings against the four defendants on 30 May 2018 conferred actual authority on the Agent to pursue all the defendants named in the statement of claim. Contrary to the premise of Mr Miles' submission, that conduct does not establish that Luneburger had knowledge of the defendants other than MJ Chatswood when the Agent commenced the proceedings. Insofar as Mr Miles pointed to his affidavit evidence containing assertions to the contrary, that evidence was rejected and there is no challenge to those evidentiary rulings. There is no evidence that Luneburger was aware of the named defendants in the statement of claim, which was verified by Mr Miles, not Mr Yaltirakli, at the time it was filed on 30 May 2018.
One further matter should be mentioned. The pleaded case was limited to alleged breach of the debt collection agreement formed on 21 March 2018. Mr Miles did not depart from the pleadings at trial. No finding was sought by Mr Miles, nor made by the primary judge, that Mr Yaltirakli's evidence in his second affidavit, which was supported by Mr Koyuncu's evidence of the instructions given to him by Mr Yaltirakli, should be rejected. To the extent that Mr Miles sought to contend in oral argument in this Court that the agreement was extended by the conduct of the parties after 21 March 2018 to cover defendants other than MJ Chatswood, or that Luneburger is estopped from denying that the parties acted on that basis, Mr Miles cannot seek to rely on a new point on appeal: Water Board v Moustakas (1988) 180 CLR 491 at 498; [1988] HCA 12; Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 at 645-646.
There was no error by the primary judge in finding that the reference to the "debtor/s" in cl 1 of the agreement did not extend to Tadami or the alleged guarantors of the debt. Ground 4 is rejected.
Grounds 2, 5 and 8-12 are related.
Ground 2 contends that the primary judge erred in finding that there was no breach of the agreement and, even if there had been, no damages flowed from that breach. Ground 5 contends that the primary judge erred in observing that it was common ground that no money was received from MJ Chatswood in satisfaction or partial satisfaction of the judgment debt.
Grounds 8, 9 and 10 contend that the primary judge erred in finding that Luneburger's authorisation of a different firm of solicitors to take over the conduct of the District Court proceedings was not contrary to the purpose of cl 2 of the agreement.
Ground 11 contends that the primary judge erred in finding that the steps taken by Luneburger did not deny the Agent the opportunity of collecting the debt from MJ Chatswood. Ground 12 contends that there was a miscarriage of justice in his Honour's finding that there was no breach of the agreement.
The remaining grounds on the question of breach can be dealt with briefly. Ground 5 goes nowhere. Regardless of whether it was common ground in the Court below that no money was received from MJ Chatswood in satisfaction or partial satisfaction of the judgment debt, it was the fact that no money was received by the Agent or Luneburger from MJ Chatswood.
To the extent that grounds 8, 9, 10, 11 and 12 contend that Luneburger breached the agreement in late November 2018 in the manner identified in [57] above, those grounds have been made out. Otherwise, the conduct of Luneburger in taking over the District Court proceedings commenced against Tadami and the alleged guarantors was not contrary to the purpose of cl 2 of the agreement, as contended by Mr Miles.
As to grounds 11 and 12, there is no evidence of any steps taken by Luneburger prior to late November 2018 which denied the Agent the opportunity to collect the judgment debt from MJ Chatswood.
Grounds 13-16 contend that the primary judge erred in his alternative finding that, even if there was a breach of the agreement by Luneburger, no damages flowed from that breach.
Ground 13 contends that the primary judge failed to consider that a judgment had already been obtained against two debtors which could have been successfully enforced against Tadami who, it was submitted, was evidently solvent.
Grounds 14 and 15 contend that the primary judge failed to consider the evidence concerning whether there was a signed guarantee and that this Court should find that the directors provided a signed guarantee. These grounds also assert that evidence to this effect was available to be provided in the original District Court proceedings had Luneburger not breached the debt collection agreement.
Ground 16 contends that the primary judge erred in finding that there was no evidence to establish that there was any real chance of enforcing a judgment against the two directors. Ground 17 is a general ground.
Applying that standard of proof on the issue of causation, the joint judgment in Badenach found that the plaintiff had not established that there was a substantial prospect that the testator would have chosen to undertake the inter vivos transactions which would have benefited the plaintiff: at [40]. Accordingly, causation of loss had not been established. Gordon J agreed in this regard, finding that the disappointed beneficiary under the will could not prove what the testator would have done had there not been a breach of duty by the solicitor (assuming such a duty existed): at [98].
In Mal Owen Consulting Pty Ltd v Ashcroft (2018) 97 NSWLR 1163; [2018] NSWCA 135, another breach of contract case, the vendor of a business retained a solicitor to recover the balance of the purchase price owing to it by the purchaser of the business. The solicitor negligently failed to prosecute the proceedings to recover the debt. The vendor retained a new solicitor who obtained judgment against the purchaser, however, by this time, the purchaser had declared bankruptcy. The vendor brought proceedings against the first solicitor seeking damages for loss of the commercial opportunity to have the initial proceedings against the purchaser brought expeditiously to a favourable outcome. The vendor succeeded on appeal (Macfarlan JA dissenting). Importantly in Mal Owen, Barrett JA observed at [102] that the substantial money judgment that the vendor obtained (and retained) in the subsequent proceedings based on the same causes of action indicated that the outcome of the earlier action would have been paramount to the vendor.
There were differing views in Mal Owen as to the effect of the High Court's reasoning in Badenach. In separate reasons, the majority in Mal Owen held that on the issue of causation the plaintiff had to prove, on the balance of probabilities, that "the lost opportunity had a real value to it" (Basten JA at [37]) and that "an opportunity of value would have been received but for the defendant's negligence", that is, "the value is not in the realms of the merely theoretical or negligible … in other words … there is some colour of value to the lost opportunity" (Barrett JA at [99] and [101]).
Macfarlan JA in dissent said (at [62]) that Badenach was difficult to reconcile with Sellars. His Honour held that Badenach required that the determination of how the vendor would have acted, had the first solicitor not been negligent, be decided on the balance of probabilities: at [67]. Similarly, the questions of whether the earlier proceedings would have been resolved quicker than the later proceedings, and whether the earlier judgment, unlike the later judgment, could have been enforced against the purchaser, were also to be decided on the balance of probabilities: at [68].
It is not necessary to address these differing views in this appeal. Neither party advanced argument as to the effect of Badenach in a case such as the present.
Addressing this last issue, Mr Miles pointed to the income recorded in the business activity statements of MJ Chatswood up until early 2018 as an indication of its likely ability to pay the debt owed to Luneburger. However, that evidence said nothing about the costs incurred by the company in earning that income, or the costs and expenses associated with the closure of the business in February 2018.
Conversely, there was evidence from which an inference could be drawn that recovery of any amount from MJ Chatswood was speculative. First, CBA bank statements for MJ Chatswood between July 2016 and July 2018 recorded a credit balance of $16.01 on 3 April 2018 and a debit balance of $26.32 on 1 July 2018. Second, unsigned special purpose financial statements of MJ Chatswood for the years ending 30 June 2017 and 30 June 2018 disclosed losses from ordinary activities before income tax in 2017 of $87,639.12 and in 2018 of $284,901.28, and negative net assets in 2017 of $215,915.23 and in 2018 of $500,816.51. Third, the only recorded assets of MJ Chatswood as at 30 June 2018 comprised $100 in cash on hand and $900 of current assets (preliminary expenses). No realisable value could be attributed to "preliminary expenses" in circumstances where the business of the company had ceased.
In summary, the evidence revealed that following the closure of its business in February 2018, MJ Chatswood did not have any realisable assets, its bank account was ultimately overdrawn, and its financial statements, although unsigned, recorded significant negative net assets.
Given the absence of evidence in relation to whether the Agent could and would have obtained an order for reinstatement of MJ Chatswood, the conclusion to be drawn on the evidence is that the value of the lost opportunity to obtain the benefit of the fee payable under the agreement for collecting the debt owed by MJ Chatswood was so low as to be regarded as negligible or speculative: Sellars at 350; Badenach at [39]. For this reason, Mr Miles has failed to prove on the issue of causation that the Agent lost an opportunity of some value.
In my view, there was no error by the primary judge in finding that there is no evidence to establish that there was any real chance of enforcing any judgment obtained against the two directors.
One further matter should be mentioned for completeness. There are difficulties, in my view, with the anterior finding by the primary judge that the claim against the alleged guarantors was viable. It is not necessary to decide this question, however, it should be noted that the following causation issues were not raised or decided below, nor raised on appeal:
1. whether the provision of the signed product supply agreement containing the guarantee, or the existence of an oral guarantee, was a past historical fact that Mr Miles was required to prove on the balance of probabilities: Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 at 639-640; [1990] HCA 20;
2. whether the claim against Ms Byun was an "honest" claim, so as to establish causation between Luneburger's assumed breach of contract and the Agent's alleged loss (Perry v Raleys Solicitors [2020] AC 352; [2019] UKSC 5 at [31]-[40]) in circumstances where the statement of claim had confused Ms Byun for her husband, Mr (John) Yee Hyun Yoo; or
3. whether, given the (untested) affidavit evidence of Ms Byun, Mr Yoo and Mr Yaltirakli, Mr Miles failed to establish that a favourable outcome of the District Court proceedings was likely, in the sense of more probable than not that judgment would be obtained against the alleged guarantors: cf the different evidentiary position as to the likely outcome of the first proceedings in Mal Owens at [102] (see [71] above).
Turning to the second question, being the assessment of the value of the lost opportunity, the matters relevant to the possibilities and probabilities that the judgment debt against Tadami could be enforced and, if so, for the whole or only part of the judgment include: Mr (John) Jee Hyun Yoo seems to have been the controller of both MJ Chatswood and Tadami and neither company had defended the District Court proceedings; MJ Chatswood closed its business in February 2018; there is evidence that sales were generated by the sushi shop which Tadami operated up until June 2018; in the absence of default by Tadami, the lease of the sushi shop continued until May 2020; and Tadami was deregistered in April 2020.
The chance of the Agent obtaining the fee payable for collecting the debt owed by Tadami is also subject to the contingency that only part of the judgment debt owed by Tadami might have been collected by the Agent, in which event the quantum of the fee payable would have been less than the amount claimed by Mr Miles in these proceedings.
Assessment of the contingencies affecting the likelihood of the Agent acquiring any fee for collecting part or all of the debt owed by Tadami can be done mathematically or on a global assessment of the contingencies. If it were necessary to decide, I would assess the chance of the Agent obtaining the fee for collecting the debt owed by Tadami as very low, and no more than a 5 to 10 per cent chance. On the hypothesis set out at [91] above, I would assess the damages for the Agent's loss of the chance of obtaining the fee for collecting the debt owed by Tadami, taking the mid-point chance of 7.5 per cent, as $266,770.85 x 7.5% x 40%, being $8,003. That amount would be rounded to $8,000. For the avoidance of doubt, I reiterate that this is a contingent finding which does not arise because, contrary to Mr Miles' submissions, the debt recovery agreement did not extend to collection of the alleged debts owed by Tadami (or the alleged guarantors).